Easier said than done. Plunging real estate prices and tighter credit markets would make it difficult for New York-based Saks to harness the value of its properties, according to Dan Fasulo, managing director of Real Capital Analytics; Richard Hastings, who tracks the consumer industry for Global Hunter Securities LLC; and retail analyst Patricia Edwards.

Saks, which had $10 million in cash at yearend, would most likely try to use its real estate as collateral for borrowing if it requires additional funding, Hastings said. It alternatively may seek to sell and lease back its most valuable properties, including the Fifth Avenue flagship store, or try to use the real estate to lure a buyer for the company, he said.

Lender agreements allow Saks to pursue the sale and leaseback of some properties, CFO Wills said on a conference call last week. The company has “ample capacity” under a revolving credit facility, he said.

‘Very Valuable’

“We’re going to be free cash flow positive,” he said. “But we also realize that if we needed to do something, we have very valuable real estate that provides us flexibility.”

Saks owns 30 of its 53 Saks Fifth Avenue locations, including stores in Chicago, Beverly Hills, Las Vegas and Atlanta. It listed its property and equipment at $1.06 billion as of Jan. 31, compared with a $301 million market value at today’s close.

A year ago, Saks’s market value was twice its book value. The stock fell 13 cents, or 5.8 percent, to $2.12 at 4 p.m. in New York Stock Exchange composite trading.

In today’s real estate market, lenders will advance a maximum of 50 percent of value, compared with 80 percent before, said Jeff Bloomberg, a principal at financial advisory firm Gordon Brothers Group LLC in Boston.

“While there is still value there, it cannot be as great today as it was two years ago,” Bloomberg said.

Flagship Store

The retailer’s 350,000 square-foot Fifth Avenue store in Manhattan is now worth $550 million to $600 million, down from as much as $800 million a year ago, according to Faith Hope Consolo, chairman of the retail leasing and sales group at Prudential Douglas Elliman in New York.

The drop in values and credit crunch mean the retailer may not be able to negotiate favorable terms for borrowing, said Hastings, based in Charlotte, North Carolina. A sale-leaseback, would be viewed negatively by investors, who don’t like to see assets wiped off a balance sheet, he said, adding that he is “skeptical” that the company can find a buyer.

Saks is getting slammed as wealthy consumers spend less on designer apparel and handbags. It reported a fourth-quarter loss Feb. 25 that was almost double analysts’ estimates after it took 75 percent markdowns to clear inventory. The retailer, which competes with Nordstrom Inc. and Neiman Marcus Group Inc., forecast a 20 percent sales decline at stores open at least a year for the first half of 2009.

Chief Executive Officer Stephen Sadove dismissed speculation on the call last week that the retailer would file for bankruptcy. He said it would hear out proposals and may choose to not exercise a so-called poison pill that limits holdings to less than 20 percent, which it reinstated in November after Mexican billionaire Carlos Slim disclosed an 18 percent stake.

Saks expects to have enough liquidity through this year under its $500 million revolving credit facility, which matures in September 2011, and on which it had $157 million outstanding as of Jan. 31, Bentley said, reiterating executives’ comments from the call.

“Two years ago, it probably would have worked perfectly” to extract value from the Saks real estate, Edwards said. “But the rose-colored glasses have been removed.”
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